Intended for healthcare professionals

Education And Debate

Inclusion of cost effectiveness in licensing requirements of new drugs: the fourth hurdle

BMJ 2004; 329 doi: (Published 21 October 2004) Cite this as: BMJ 2004;329:972
  1. R S Taylor (, reader in public health and epidemiology1,
  2. M F Drummond, director2,
  3. G Salkeld, professor of health economics3,
  4. S D Sullivan, professor of pharmacy and health services4
  1. 1 Department of Public Health and Epidemiology, University of Birmingham, Birmingham B15 2TT
  2. 2 Centre for Health Economics, University of York, York
  3. 3 School of Public Health, University of Sydney, Sydney, Australia,
  4. 4 Pharmaceutical Outcomes Research and Policy Program, University of Washington, Seattle, USA
  1. Correspondence to: R S Taylor
  • Accepted 24 August 2004

Increasing numbers of countries are considering cost effectiveness in decisions about which drugs to make available for prescription. How do the different approaches work and is it time for standardisation?


Licensing is the main method of regulating and controlling access to pharmaceuticals. New drugs cannot receive a product licence until manufacturers provide evidence of their quality, safety, and efficacy. In a world of rapidly escalating global healthcare costs, evidence of a drug's quality, safety, and efficacy is no longer sufficient to ensure reimbursement for use in public markets. Increasingly, new drugs must show evidence of cost effectiveness. In other words, does the drug produce a useful health gain (over and above currently available treatments) for its additional cost? In industry circles this value for money requirement has become known as the fourth hurdle. In this article, we examine the international development of fourth hurdle policies, analyse their effect, and identify some of the future challenges and likely directions.

Emergence of the fourth hurdle

The first healthcare system to develop formal regulations governing the use of cost effectiveness evidence in reimbursement decisions was Australia. Since 1993, the Australian Pharmaceutical Benefit Scheme has insisted on appropriate economic evidence before authorising public funding of a new drug.1 Once the Pharmaceutical Benefits Advisory Committee receives a submission from a pharmaceutical company, it is appraised in an explicit process that deconstructs the evidence provided by the manufacturer. The committee considers the evidence on cost effectiveness as one of several potentially important factors when advising the health minister on whether to list the drug for reimbursement. These include:

  • The importance of the clinical area

  • The availability of alternative treatments

  • The likely effect of listing on the healthcare system and other therapeutic activities

  • The investment of the sponsor in primary research.

The committee may therefore accept a higher price for a …

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